Feeling the Heat

The case for raising interest rates keeps getting stronger, while Bitcoin keeps getting weaker. As inflation refuses to ease off and the Bank of Japan’s June meeting looms, it looks like the pressure on risk assets is only set to increase. All eyes in crypto will be on BTC and whether it can hold around $60,000, or if another leg lower is incoming.

Meanwhile, a big factor in Bitcoin’s recent struggles has been Strategy’s decision to sell some of its BTC - something many assumed the company would never do. Even though the amount it sold is trifling when set against its total holdings, the market is not taking the news well. Read all about it below.

👊 Vitalik Hits Back 👊

It seems that Ethereum’s leadership is starting to take note of some of the criticisms coming out of the community. Vitalik himself has just announced a major "smaller ship" framework for the Ethereum Foundation, anchored by a new "CROPS" mandate (focusing on censorship resistance, openness, privacy, and security) while also promising to cut ETH sales.

But, is this a bold strategic pivot to position Ethereum as the ultimate institutional settlement layer, or merely damage control in the face of leadership departures, market stagnation, and a mass migration of developers to competitors like Solana?

In today’s video, we cut through the cypherpunk rhetoric to determine if these reforms grant Ethereum the credibility it needs, or if it’s simply losing the race to faster, more agile competitors. We also dig into exactly what changes lie ahead and round up some of the crucial events to watch over the coming months. As crypto goes through a crisis of confidence, can Ethereum help the sector find its mojo again?

You can watch that video here.

📈 Crypto Market Forecast 📈

Friday’s jobs report told the Federal Reserve something it probably didn’t want to hear. May nonfarm payrolls increased by 172,000, broadly in line with April's 179,000 and well above the market consensus of around 80,000. On the surface, a resilient labour market is a good thing. In the current environment though it’s also a problem, because it removes one of the few remaining arguments for rate cuts and adds further pressure on Warsh to hold or hike.

Bitcoin is trading at approximately $62,000 this week, having lost another significant chunk of value since the previous newsletter. The market entered June below $74,000, fell through $70,000, and has now settled in a range that represents a roughly 24% decline from the May high. The on-chain case for February's $60,000 low as the cycle bottom remains intact: the realised cap has stabilised, the pattern does not resemble previous bear market rally reversals, and derivatives positioning has remained cautiously hedged rather than aggressively short. But the macro environment continues to be hostile in ways that are difficult for on-chain data to override.

That’s mainly because the inflation picture is not improving. Core PCE for April came in at 3.3% and is now forecast by UCLA to peak at 4.5% by year-end. US logistics costs hit their highest level since March 2022 this week - with the freight transport price gauge setting an all-time record in nearly a decade of data. Supply chain experts have noted that this level of logistics inflation historically leads to significant consumer price pressure within six to twelve months. The Federal Reserve is being asked to fight a supply shock with tools that can only affect demand, and higher interest rates cannot open the Strait of Hormuz or add more truck capacity.

The Bank of Japan meets on the 16th June and a rate hike is now 94% priced in the overnight swap market. This matters for crypto because of the capital repatriation dynamic we’ve discussed before: when the BOJ hikes, Japanese investors holding US Treasuries and risk assets to capture the carry trade begin to reduce those positions. The yen hit 160 against the dollar this week - record spending on currency intervention in April and May did nothing to stop it. A BOJ hike paired with hawkish forward guidance could trigger meaningful capital flows back to Japan, adding to the upward pressure on US bond yields that has been the dominant headwind for risk assets throughout this cycle.

Bitcoin’s price is now approaching a level where very significant structural support sits between $58,000 and $60,000. This zone represents the approximate cost basis of long-term holders who accumulated between early 2024 and early 2025. A move into that range would not be unprecedented in the context of previous cycles. What it would represent, however, is a further extension of the pain phase in a cycle that has been more drawn out than any previous post-halving period.

In sum then, we’re navigating one of the more complex environments of this cycle. Strong jobs data, reaccelerating inflation, and a Fed more likely to hike than cut all combine to create a strong headwind. Bitcoin at $61,000 is sitting above critical support but well below where the structural narrative would have placed it at this stage of the cycle.

Our directional call remains cautious in the near term. If Bitcoin holds the $58,000 to $60,000 zone on any deeper test, the medium-term case for recovery remains intact. If it fails that level on a sustained basis, the conversation changes entirely.

📉 The Strategy Problem  📉

It’s been a couple of crazy weeks for Bitcoin.

The price of BTC dropped roughly 20% in a matter of 10 days, going from ~$77K on May 26th to a low of ~$62K on June 4th. For the most part, this catastrophic price action follows one development – albeit a sentimentally significant one.

You see, after years of shouting “never sell,” Michael Saylor’s firm Strategy was caught violating his own teachings. According to a Form 8-K filed on June 1st, Strategy sold 32 BTC (~$2.5 million) between May 26th to 31st at an average price of $77,135 each.

While this isn’t exactly Strategy’s first sale of BTC, the news had a major impact on the sentiment around the company’s $MSTR stock and the broader crypto market.

After all, at first glance, it looks like the asset’s most zealous evangelist just spat in the face of his most loyal followers. However, to truly understand what transpired, it’s important to appreciate the nuance around the sale.

If you zoom out, you’ll see that a 32 BTC sale is nothing more than a rounding error on Strategy’s balance sheet. Against a treasury of 843,706 BTC, it represents just 0.0038% of the stack. By no measure would a mere 32 BTC sale be capable of moving the markets the way it did.

In other words, the real reason it had such an impact was because it signified the break of something larger. Specifically, the idea that Strategy would never be in a position to sell its BTC.

As some of you may know, Digital Asset Treasury (DAT) companies have been a controversial topic in crypto. Some love them since they can provide price support to the assets they hold, while others hate them since they’re essentially leveraged vehicles that may be forced to capitulate when times are tough (like now).

For context, Strategy alone accounts for ~70% of the cumulative market cap for BTC DATs. Its BTC treasury is orders of magnitude larger than that of the second biggest DAT, Twenty One Capital (a mere 43,033 BTC).

To top it off, Strategy’s entire model is built on leverage: it issues convertible senior notes, perpetual preferred stock (STRC, STRD, STRF, STRK, etc.), and at-the-market (ATM) equity offerings to raise cheap capital specifically to buy more BTC.  

As not only the biggest but also the most leveraged DAT, Strategy acts as proxy for the broader health of the DAT sector.

Since the second half of last year, a growing cohort of market participants have been increasingly worried about the survival of these DATs during a crypto bear market. For context, Strategy has built up roughly $15.5 billion in preferred stock across its various instruments, carrying around $1.5 billion in annual dividend obligations. Preferred stock sits ahead of common equity in the capital structure and must be serviced regardless of where BTC trades.

At the time, many compared Strategy’s dividend obligation to a tightening noose around its “never sell BTC” strategy. At the end of the day, cash flow is king. You need cash to pay dividends. If you don’t have cash, you’re going to be forced to liquidate assets. This defeats the idea of DATs being perpetual accumulation machines.

While Saylor maintains that Strategy has an ongoing software business that generates revenue every year. The honest truth is that Strategy cannot realistically pay its dividends solely (or even primarily) from cash flow generated by that business. For context, its latest earnings report shows that the software business makes roughly $500 million in revenue and a few tens of millions in operating cash flow per year. That’s nowhere near the $1.5 billion annual dividend obligation.

That said, Saylor managed to assuage investor concerns at the time by announcing a $1.44 billion cash reserve dedicated to future dividend and interest payments. The reserve was expected to cover roughly 21 months of dividend obligations.

With that context, the question becomes – “what’s changed?”

Well, just days before the 32 BTC sale, Strategy had revealed that it spent $1.38 billion buying back $1.5 billion of its 2029 convertible notes. This purchase drew its USD reserve down to about $871 million, leaving a runway of under eight months on the dividend bill if no fresh capital comes in.

In other words, the wad of cash keeping investor concerns at bay has just disappeared. In a period where everyone was wondering what came next, the 32 BTC sale effectively confirmed that Strategy is now prepared to sell BTC to service its dividend obligations.

Given Strategy’s previous stance on selling, the market has interpreted the latest development as a confirmation of weakness in the DAT model. In other words, the market is now anticipating more sales of BTC in the weeks ahead.

Not to mention that, come Monday, there’s a major decision that could influence how often Strategy pays holders of $STRC ("Stretch") – its perpetual preferred stock paying an 11.5% annualised dividend in monthly cash installments.

You see, STRC’s defining feature is that the dividend rate is reset every month with the goal of keeping shares trading near their $100 par value. That par peg allows Strategy to keep selling STRC through its at-the-market programme to raise fresh capital. When STRC slips below par, it signals low confidence in the company’s ability to pay holders, in turn affecting a capital raise via its at-the-market programme.

Since the BTC sale, STRC has been closing around the $95 mark reflecting weakening confidence in the asset. Fortunately, a pending shareholder vote on June 8th would shift it to twice-monthly payments to try to tighten the peg further.

And in Saylor’s defence, it’s worth mentioning that he doesn’t think he’s violated any of his core principles around BTC. Specifically, in a recent interview with Bonnie Blockchain, Saylor said the more accurate principle is to "never be a net seller of Bitcoin." In other words, he’s promising to buy back more BTC that he sells.

Coincidentally, during Strategy’s first sale, which took place in late December 2022 as part of a tax loss harvesting strategy, the company sold 704 BTC only to buy back far more during the same period (net buyer of ~1,691 BTC that period). It also marked the bottom of the crypto bear market at the time.

That said, it’s anyone’s guess just how many BTC might be sold before these buys begin again. It’s also worth wondering if Strategy’s BTC sells are marking a crypto bear market bottom for a second time. Only time will tell - until then, stay safe degens.

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📖 Quote of the Week 📖

"In the midst of winter, I found there was, within me, an invincible summer."- Albert Camus

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.